If Debtor-Creditor Analysis Were Not the Proper Standard of Review under Medicaid Law for Irrevocable Trusts, Nursing Homes Could End up Being Unpaid for Services

May 18, 2014

As already noted on this blog, the lawyers at the Office of Medicaid has been on an attack against just about all trusts during the MassHealth long term care application process. The misleading memorandum of the Office of Medicaid usually describes the irrevocable trust as if the principal were directly payable to the Settlor, and completely ignores the financial consequences to the nursing home where care is being provided. Unfortunately, the nursing home needs to get paid, and the lawyers at the Office of Medicaid do not seem to be concerned about this issue.

As described on this blog in the past, the federal Medicaid law allows the Office of Medicaid to implement basic Massachusetts debtor-creditor law. If a nursing home resident’s MassHealth application is denied due to the existence of the irrevocable trust, and if the nursing home can reach the irrevocable trust as a creditor of the Settlor under Massachusetts debtor-creditor laws, then the nursing home could eventually be made whole by filing a lawsuit against the trust so that it would be forced to pay for the services rendered.

If, however, the MassHealth application is denied, and a creditor of the Settlor cannot reach the principal of the trust, then the trustee could not be forced to pay the nursing home. In this event, the nursing home would be left with no payment source. The unrelenting zeal of the lawyers at the Office of Medicaid to attack all trusts therefore misses the point of the federal law and can cause the nursing home to be the real financial victim of the MassHealth denial. Congress could not have intended such a disastrous financial result for the nursing home industry when it tightened the federal Medicaid trust laws in 1985 and 1993.